International Adviser spoke with Tony Allan, head of business development at LGT Wealth Management, to discuss the future of the discretionary fund management market.
Allan shared his views on the biggest issues facing financial advisers; the investment issues that advisers currently want help with; the future of the DFM market; the ‘adviser as a platform’ debate; and the future of the multi-asset portfolio.
What does LGT think is the biggest issue facing financial advisers?
Allan said: “International advisers have, for the past 20 years, faced elevated costs compared to their UK counterparts. When we entered the international DFM market, we replicated our UK pricing model only to find that others had been operating a far higher margin model.
“However, increasing transparency and regulation are likely to put pressure on this issue; with greater requirements on transparency around charges, we expect to see the international market’s pricing models become, over time, more similar to those in the UK.
“There is also the issue of geographical presence. Many DFMs are present primarily in the UK, with limited international reach, so advisers outside the UK lack face-to-face contact with their DFMs.
“At LGT, we are present in key financial markets globally and it is something that we have really concentrated on as a way to differentiate ourselves in the market. We have dedicated specialists who know the ins and outs of their relevant jurisdictions and regulations and can build long-term partnerships with advisers in person. Advisers know that their clients’ wealth is personal to them, so they, in turn, need to have that personal approach.”
What investment issues do advisers currently want help with?
He said: “In our experience, we have found that international advisers are seeking discretionary solutions for many of the same reasons as UK advisers.
“Where they are running advisory models, they can see value in working with a DFM – with the buying power of a DFM and the additional investment research that comes as part of this offering, they can demonstrate more value to their clients.
“Working with a DFM ultimately frees advisers up to spend more time with their clients on financial planning and strategy.”
What is the future of the DFM market?
Allan said: “The international adviser landscape is very different from that of the UK. In the UK, where there is around 5,000 IFA firms, some comprising one-two advisers, the regulatory environment is encouraging firms to come together, whether that’s through networks or by consolidating into larger entities.
“Comparatively, the international-adviser market is already larger and therefore better positioned to be partnering with DFMs. Globally, we see opportunities within the DFM market – and we aim to be part of it.”
What is LGT’s position on the ‘adviser as a platform’ debate?
He said: “As a DFM, LGT Wealth Management is neutral on the adviser as a platform debate.
“We have a custody platform available, ready for advisers to use should they wish; equally, we are happy to work with advisers’ own platforms.
“For us, it’s a case of working with the adviser to achieve their best outcome, rather than advocating for custody if it’s not right for them.”
What is the future of the multi-asset portfolio?
He added: “Last year was one of the seven years in the last 42 where a traditional 60/40 portfolio failed to deliver a positive return. Rising and persistent inflation resulted in both bonds and equities registering double-digit declines. The positive correlation of both asset classes made finding shelter all the more difficult, with cash and absolute-return strategies becoming essential.
“However, with higher yields available in fixed income, bonds are once again playing an important role in portfolios, providing a source of income as well as the potential for diversification benefits. At the same time, investors are able to take advantage of selective opportunities within equity markets where valuations look attractive. This was evidenced in the first month of 2023, with both bonds and equities delivering positive returns, and leading many to ask whether the 60/40 portfolio has made a comeback.
“While the outlook is certainly rosier, the recent banking crisis highlighted the volatile environment in which we find ourselves. Investors would be wise to consider further diversification through uncorrelated assets while policy uncertainty and inflation risks remain on the table.”
